[Federal Register Volume 63, Number 130 (Wednesday, July 8, 1998)]
[Notices]
[Pages 36971-36974]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18005]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 23295; 812-11106]


First American Investment Funds, Inc. et al.; Notice of 
Application

June 30, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').


[[Page 36972]]


ACTION: Notice of application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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SUMMARY OF APPLICATION: Order requested to allow certain series of a 
registered open-end investment company to acquire all of the assets and 
liabilities of: (i) certain series of three registered open-end 
investment companies, and (ii) five registered closed-end investment 
companies. Because of certain affiliations, applicants may not rely on 
rule 17a-8 under the Act.

APPLICANTS: First American Investment Funds, Inc. (``FAIF''), U.S. Bank 
National Association (``U.S. Bank''), Piper Funds Inc. (``PFI''), Piper 
Funds Inc.-II (``PFI-II''), Piper Global Funds Inc. (``PGF''), the 
Americas Income Trust Inc. (``XUS''), Highlander Income Fund Inc. 
(``HLA''), American Government Income Fund Inc. (``AGF''), American 
Government Income Portfolio, Inc. (``AAF''), American Opportunity 
Income Fund Inc. (``OIF''), and Piper Capital Management Incorporated 
(``Piper Capital'').

FILING DATES: The application was filed on April 15, 1998. Applicants 
have agreed to file an additional amendment, the substance of which is 
incorporated in this notice, during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on July 23, 1998 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants: FAIF, Oaks, PA 19456; U.S. Bank, First Bank Place, 
601 Second Avenue South, Minneapolis, MN 55480; PFI, PFI-II, PGF, XUS, 
HLA, AGF, AAF, OIF, and Piper Capital, 222 South Ninth Street, 
Minneapolis, MN 55402-3804.

FOR FURTHER INFORMATION CONTACT:
Mary T. Geffroy, Senior Counsel, at (202) 942-0553, or Christine Y. 
Greenlees, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. XUS, HLA, AGF, AAF, and OIF, each a Minnesota corporation, are 
closed-end management investment companies registered under the Act 
(collectively, the ``Piper Closed-End Funds''). PFI, PFI-II, and PGF, 
each a Minnesota corporation, are open-end management investment 
companies registered under the Act (collectively; the ``Piper Open-End 
Funds''). Each of the Piper Open-End Funds offers shares in certain 
series, some of which, together with the Piper Closed-End Funds, 
constitute the ``Acquired Funds.'' PFI offers shares in 12 series, 
seven of which will be Acquired Funds. PFI-II offers a single 
portfolio, which will be an Acquired Fund. PGF offers two portfolios, 
each of which will be an Acquired Fund.
    2. Piper Capital, a wholly-owned subsidiary of Piper Jaffray 
Companies Inc. (``Piper Jaffray''), is registered under the Investment 
Advisers Act of 1940 (the ``Advisers Act'') and is the investment 
adviser to the Acquired Funds. In addition to Piper Capital, Piper 
Jaffray's wholly-owned subsidiaries include Piper Jaffray Inc. 
(``Piper''), a broker-dealer, and Piper Trust Company (``Piper 
Trust''), which provides trust services to individuals and 
institutions. Piper Capital, Piper, Piper Trust, and their affiliates, 
all of which are part of a common control group (the ``Piper 
Affiliates''), hold of record more than 5% of the outstanding shares of 
certain Acquired Funds.
    3. FAIF, \1\ a Maryland corporation, is an open-end investment 
company registered under the Act. FAIF currently offers shares in 24 
series, seven of which will be ``Acquiring Funds'' (the ``Existing FAIF 
Funds''). FAIF is creating several new series, four of which also will 
be Acquiring Funds (the ``New FAIF Funds''). The Acquired Funds and the 
Acquiring Funds collectively are referred to as the ``Funds.''
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    \1\ FAIF was incorporated in 1987 as ``SECURAL Mutual Funds, 
Inc.'' and changed its name to ``First American Investment Funds, 
Inc.'' in 1991.
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    4. U.S. Bank serves as investment adviser for the Existing FAIF 
Funds, and will serve as investment adviser for the New FAIF Funds. 
U.S. Bank is exempt from registration under the Advisers Act. U.S. Bank 
is a wholly-owned subsidiary of U.S. Bancorp, as is U.S. Bank Trust 
National Association (``U.S. Trust''). U.S. Bank, U.S. Trust, and their 
affiliates, all of which are part of a common control group (the ``U.S. 
Bancorp Affiliates'') hold of record more than 5% of the outstanding 
shares of certain Acquiring Funds. In addition, defined benefit plans 
for which the U.S. Bancorp Affiliates have funding obligations own more 
than 5% of the outstanding shares of certain Acquiring Funds.\2\
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    \2\ 5% or more of the outstanding shares of each Acquired Fund 
and its corresponding Acquiring Fund are owned by the Piper 
Affiliates, the U.S. Bancorp Affiliates, or both, except for AAF and 
FAIF Fixed Income Fund. AAF and FAIF Fixed Income Fund cannot rely 
on rule 17a-8 because defined benefit plans to which the U.S. 
Bancorp Affiliates have funding obligations own more than 5% of FAIF 
Fixed Income Fund.
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    5. On May 1, 1998, U.S. Bancorp acquired Piper Jaffray (the 
``Merger''). As a result of the Merger, Piper Capital became an 
indirect wholly-owned subsidiary of U.S. Bancorp. In addition, U.S. 
Bank and U.S. Trust became affiliated with Piper Jaffray, Piper 
Capital, Piper Trust, and Piper, and all of these entities became part 
of a common control group.
    6. On February 23, 1998, the board of directors of FAIF (the ``FAIF 
Board''), including the disinterested directors, unanimously approved 
each of the reorganizations (the ``Reorganizations''). On April 13, 
1998, the boards of directors of the Piper Open-End Funds, XUS and HLA, 
including in each case the disinterested directors, unanimously 
approved the Reorganizations, including draft versions of the 
reorganization agreements between FAIF and the Acquired Funds (the 
``Reorganization Agreements''). On April 27, 1998, the boards of 
directors of AGF, AAF, and OIF, including in each case the 
disinterested directors, unanimously approved the Reorganizations. The 
consummation of the Reorganizations is expected to occur on or about 
July 24, 1998, for XUS and HLA, July 31, 1998, for the Piper Open-End 
Funds, and August 31, 1998, for AGF, AAF, and OIF (each, a 
``Closing'').
    7. Pursuant to the Reorganization Agreements, each Acquiring Fund 
proposes to acquire all of the assets and assume all of the liabilities 
of its corresponding Acquired Fund in exchange for shares of designated 
classes of the Acquiring Fund based on the Funds' relative net asset 
values.\3\

[[Page 36973]]

The number of Acquiring Fund shares to be issued in exchange for each 
Acquired Fund share of each class will be determined by dividing the 
net asset value of one Acquiring Fund share of the appropriate 
corresponding class by the net asset value of one Acquired Fund share 
of that class, computed as of the close of trading on the New York 
Stock Exchange on the date that the conditions to closing are satisfied 
or on a later date as the parties may agree (the ``Effective Time''). 
Each Reorganization Agreement provides that, at the Effective Time, 
each Acquiring Fund will issue and distribute pro rata to its 
corresponding Acquired Fund's shareholders of record, determined as of 
the Effective Time, the Acquiring Fund shares issued in exchange for 
the Acquired Fund shares. Afterwards, no additional shares representing 
interests in the Acquired Fund will be issued, and the Acquired Fund 
will be liquidated. The distribution will be accomplished by the 
issuance of the Acquiring Fund shares to open accounts on the share 
records of the Acquiring Fund in the names of the Acquired Fund 
shareholders representing the number of Acquiring Fund shares due each 
shareholder pursuant to the Reorganization Agreement. Simultaneously, 
all issued and outstanding shares of the Acquired Fund will be canceled 
on the books of the Acquired Fund.
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    \3\ The Acquired Funds and the corresponding Acquiring Funds 
are: (i) PFI Small Company Growth Fund and FAIF Small Cap Growth 
Fund; (ii) PFI Emerging Growth Fund and FAIF Mid Cap Growth Fund; 
(iii) PFI Growth Fund and FAIF Large Cap Growth Fund; (iv) PFI 
Growth and Income Fund and FAIF Large Cap Value Fund; (v) PFI 
Balanced Fund and FAIF Balanced Fund; (vi) PFI Intermediate Bond 
Fund and FAIF Intermediate Term Income Fund; (vii) PFI Government 
Income Fund and FAIF Fixed Income Fund; (viii) PGF Pacific European 
Growth Fund and FAIF International Fund; (ix) PGF Emerging Markets 
Growth Fund and FAIF Emerging Markets Fund; (x) PFI-II Adjustable 
Rate Mortgage Securities Fund and FAIF Adjustable Rate Mortgage 
Securities Fund; (xi) The Americas Income Trust and FAIF Strategic 
Income Fund; (xii) Highlander Income Fund and FAIF Strategic Income 
Fund; (xiii) American Government Income Fund and FAIF Fixed Income 
Fund; (xiv) American Government Income Portfolio and FAIF Fixed 
Income Fund; and (xv) American Opportunity Income Fund and FAIF 
Fixed Income Fund.
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    8. The Existing FAIF Funds offer shares in three classes (Classes 
A, B, and Y). The New FAIF Funds will offer shares in two classes 
(Classes A and Y). Only Class A and Class Y shares will be issued in 
the Reorganizations. Class A shares are not subject to a front-end 
sales charge. Purchases of $1 million or more are not subject to an 
initial sales charge, but are subject to a contingent deferred sales 
charge (``CDSC'') if redeemed within 24 months after purchase. Class A 
shares are subject to shareholder servicing fees under a rule 12b-1 
plan. Class Y shares are not subject to a front-end, contingent 
deferred, or other sales charge, a redemption fee, or rule 12b-1 
distribution or shareholder servicing fees.
    9. The Piper Open-End Funds offer shares in three classes (Classes 
A, B and Y). Class A shares are subject to a front-end sales charge. 
Purchases of $500,000 or more are not subject to an initial sales 
charge, but are subject to a CDSC if the shares are redeemed within a 
certain time period from the date of purchase. Class A shares of some 
of the Acquired Funds are subject to distribution and shareholder 
servicing fees under rule 12b-1 plans. Class B shares are subject to a 
front-end sales charge but may be subject to a CDSC. Class B shares are 
subject to shareholder servicing fees under rule 12b-1 plans. Class Y 
shares are not subject to either a front-end, contingent deferred, or 
other sales charge, a redemption fee, or rule 12b-1 distribution or 
shareholder servicing fees. Each Piper Closed-End Fund has one class of 
shares, which is traded on the New York Stock Exchange (except shares 
of HLA, which are traded on the American Stock Exchange). Investors 
thus incur brokerage commissions when purchasing and selling these 
shares.
    10. As a result of the Reorganizations, holders of Class A and B 
shares of the Piper Open-End Funds will become holders of Class A 
shares of the corresponding Acquiring Funds, and holders of Class Y 
shares of the Piper Open-End Funds will become holders of Class Y 
shares of the corresponding Acquiring Funds. Shareholders of the Piper 
Closed-End Funds will receive Class A shares of the corresponding 
Acquiring Funds. No sales charge will be imposed on any of the 
Acquiring Fund shares to be issued to Acquired Fund shareholders in the 
Reorganizations.
    11. The Funds pay to their respective investment advisers annual 
investment advisory fees. U.S. Bank has agreed that, for a two year 
period commencing on the Closing, it will waive fees and reimburse 
expenses to the Acquiring Funds to the extent necessary so that no 
Acquiring Fund will have total operating expenses in excess of those 
currently applicable to the corresponding Acquired Fund, except with 
respect to the Class Y shares of Piper Intermediate Bond Fund and OIF.
    12. The investment objectives of each Acquired Fund and its 
corresponding Acquiring Fund are similar. The investment policies and 
restrictions of each Acquired Fund and its corresponding Acquiring Fund 
also are similar, but in some cases involve differences that reflect 
the differences in the general investment strategies utilized by the 
Funds.
    13. The FAIF Board and the boards of directors of the Piper Open-
End Funds and the Piper Closed-End Funds (collectively, the ``Piper 
Boards,'' and together with the FAIF Board, the ``Boards''), including 
in each case a majority of their disinterested directors, found that 
participation in the Reorganizations is in the best interests of each 
Acquired Fund and Acquiring Fund, and that the interests of existing 
shareholders of those Funds will not be diluted as a result of the 
Reorganizations.
    14. In approving the Reorganizations, the Boards considered, among 
other things: (a) the compatibility of the investment objectives, 
policies, and restrictions of each Acquired Fund and its corresponding 
Acquiring Fund; (b) the advantages of each Reorganization; (c) the tax-
free nature of the Reorganizations; (d) the terms and conditions of the 
Reorganization Agreements; (e) costs associated with the 
Reorganizations; and (f) investment advisory fees, rule 12b-1 fees, and 
sales charges that would become applicable to Acquired fund 
shareholders as a result of the Reorganizations.\4\
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    \4\ The Boards noted that no sales charge will be imposed on any 
of the Acquiring Fund shares to be issued in the Reorganizations.
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    15. In addition, the Piper Boards considered, among other things: 
(a) the potential effect of the Reorganizations on the shareholders of 
the Acquired Funds; (b) the capabilities of U.S. Bank and other service 
providers to the Acquiring Funds; (c) the investment advisory and other 
fees paid by the Acquiring Funds, and the historical and projected 
expense ratios of the Acquiring funds as compared to those of the 
Acquired funds; (d) the potential economies of scale that may result 
from the Reorganization, given the fact that each of the Acquiring 
Funds, except for the New FAIF Funds, is larger than the corresponding 
Acquired Fund; (e) U.S. Bank's agreement to pay the expenses incurred 
in connection with the Reorganizations (except as described below), and 
to waive fees and reimburse expenses for the two year period commencing 
on the Closing; and (f) the effect on the shareholders of the Piper 
Closed-End Funds of a change from a closed-end investment company to a 
series of an open-end investment company. Also, with respect to the 
Piper Closed-End Funds, the board of directors of the Piper Closed-End 
Funds considered alternative structures.
    16. U.S. Bank will be responsible for the expenses incurred in 
connection

[[Page 36974]]

with the Reorganizations, except the normal expenses incurred for 
regular annual meetings of the Piper Closed-End Funds, which will be 
borne by the Piper Closed-End Funds.
    17. The Reorganization Agreements may be terminated prior to the 
Closing upon the mutual consent of both the respective Acquired Fund 
and FAIF, or by either the respective Acquired Fund or Acquiring Fund 
if its board of directors determines that proceeding with the 
Reorganization is inadvisable.
    18. Registration statements on Form N-14 (``N-14 Registration 
Statements'') were filed with the SEC on behalf of PFI, PFI-II, PGF, 
XUS and HLA on April 15, 1998. An N-14 Registration Statement was filed 
on behalf of AGF, AAF and OIF on May 18, 1998. Applicants mailed a 
prospectus/proxy statement to shareholders of the Acquired Funds 
(except AGF, AAF and OIF) on May 29, 1998. Applicants expect to mail a 
prospectus/proxy statement to shareholders of AGF, AAF and OIF on or 
about June 30, 1998.
    19. Each Reorganization is subject to a number of conditions, 
including: (a) the Acquired Fund shareholders will have approved the 
Reorganization Agreement; (b) the Acquired Fund will have received an 
opinion of counsel with respect to the federal income tax aspects of 
the Reorganization; (c) applicants will have received exemptive relief 
from the SEC with respect to the issues that are the subject of the 
application; (d) the N-14 Registration Statements will have become 
effective; and (e) each Acquired Fund will have declared a dividend 
and/or other distribution in order to distribute all of its investment 
company taxable income, exempt-interest income, and realized net 
capital gain, if any for the taxable year. Applicants agree not to make 
any material changes to the Reorganization Agreements that affect the 
application without prior SEC approval.

Applicants' Legal Analysis

    1. Section 17(a) of the act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person of 
that person, acting as principal, from selling any security to, or 
purchasing any security from, the company. Section 2(a)(3) of the Act 
defines an ``affiliated person'' of another person to include (a) any 
person that directly or indirectly owns, controls, or holds with power 
to vote 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose outstanding voting 
securities are directly or indirectly owned, controlled, or held with 
power to vote by the other person; (c) any person directly or 
indirectly controlling, controlled by, or under common control with the 
other person; and (d) if the other person is an investment company, any 
investment adviser of that company.
    2. Rule 17a-8 under the act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons solely by reason of having a common investment 
adviser, common directors/trustees, and/or common officers, provided 
that certain conditions set forth in the rule are satisfied.
    3. Applicants believe that they may not rely on rule 17a-8 because 
the Funds may be affiliated for reasons other than those set forth in 
the rule. The U.S. Bancorp Affiliates hold of record more than 5% of 
the outstanding shares of certain Acquiring Funds and hold or share 
voting power and/or investment discretion with respect to a portion of 
those shares. In addition, defined benefit plans to which the U.S. 
Bancorp Affiliates have funding obligations own more than 5% of certain 
Acquiring Funds. The Piper Affiliates hold of record more than 5% of 
the outstanding shares of certain Acquired Funds and hold or share 
voting power and/or investment discretion with respect to a portion of 
those shares. Because of these ownership interests, and the fact that, 
as a result of the Merger, the U.S. Bancorp Affiliates are ``affiliated 
persons'' of the Acquired Funds and the Piper Affiliates are 
``affiliated persons'' of the Acquiring Funds because they are under 
the common control of U.S. Bancorp, the Acquiring Funds may be deemed 
affiliated persons of affiliated persons of the Acquired Funds, and 
vice versa, for reasons not based solely on their common adviser. 
Consequently, applicants are requesting an order pursuant to section 
17(b) of the Act exempting them from section 17(a) to the extent 
necessary to consummate the Reorganization.
    4. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the provisions of section 17(a) if the terms of the 
proposed transaction, including the consideration to be paid or 
received, are reasonable and fair and do not involve overreaching on 
the part of any person concerned, and the proposed transaction is 
consistent with the policy of each registered investment company 
concerned and with the general purposes of the Act.
    5. Applicants submit that the terms of the Reorganizations satisfy 
the standards set forth in section 17(b), in that the terms are fair 
and reasonable and do not involve overreaching on the part of any 
person concerned. Applicants note that the Boards, including in each 
case a majority of their disinterested directors, found that 
participation in a Reorganization is in the best interests of each 
Acquired Fund and its corresponding Acquiring fund, and the intersts of 
existing shareholders of the Funds will not be diluted as a result of 
the Reorganizations. Applicants also note that the exchange of the 
Acquired Funds shares for the Acquiring Funds' shares will be based on 
the Funds' relative net asset values.

    For the SEC, by the Division of Investment Manangement, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18005 Filed 7-7-98; 8:45 am]
BILLING CODE 8010-01-M